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2014/07/04 00:00:00 GMT+2

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The tax dispute with the US an agreement has been reached with Credit Suisse so what's next?

The tax dispute with the US an agreement has been reached with Credit Suisse so what's next?

After over two years of negotiations, Credit Suisse has reached an agreement with the US authorities to resolve the issues surrounding its US client business. The US Department of Justice's programme has been going at full speed since September. What else is in store for the banks?

A short time ago, Credit Suisse (CS), the largest of the Category 1 banks, reached an agreement with the US authorities. The Swiss Bankers Association (SBA) recognises favourably that the solution respects Switzerland’s existing legal framework. Bank-client confidentiality is being adhered to. The requirements of the Federal Data Protection Commissioner are being respected. The rules agreed to by Switzerland and the US regarding the exchange of client data are also being adhered to.

The SBA expects that the other Category 1 banks under investigation by the US DoJ will now soon reach a settlement.

Now that it seems that Bank Leumi will also be able to reach a settlement with the US, the outlook for the remaining Category 1 banks is favourable with regard to being able to put an end to the tax dispute with the US.

So is everything hunky dory? Not quite.

The internal outlay and external consulting costs were enormous for CS. The same applies for the other banks in Category 1. The size of the fine to be paid by CS is astounding. On the positive side, however, CS can now draw a line under its problems with the US and can once again focus entirely on its business activities. The SBA expects that the other Category 1 banks under investigation by the US Department of Justice (DoJ) will now soon reach a settlement. A settlement that is hopefully consistent with the principles of fairness and proportionality.

When the DoJ and the Swiss Federal Council announced the programme for the settlement of the tax dispute between the Swiss banks and the US in August 2013, this was a signal for various banks in Switzerland to review their risks with regard to their exposure to untaxed American clients.

At the moment, around 100 banks are in the final phase of their negotiations with the DoJ.

From the point of view of the SBA, the programme entails painful consequences for the banks in Switzerland. On the one hand, the fines are at the upper end of the legally acceptable and economically sustainable levels. On the other hand, the programme is the sole remaining solution available to the banks that allows them to definitively end their problems with the US and to ensure legal certainty. Around 100 banks in Switzerland therefore agreed to participate in the programme under Category 2 at the end of last year. On the one hand, the SBA helped, to found the association “Programm 2013”, a coordination platform available to all banks. On the other hand, the SBA has supported the banks to the greatest extent possible in participating in the programme and took on its own coordination responsibilities without, however, being involved in the individual proceedings.

At the moment, around 100 banks are in the final phase of their negotiations with the DoJ. Due to the massive volume of work involved, and after consultation with the Swiss authorities, the SBA and the association “Programm 2013”, the US side has extended the deadline for delivering documents to the DoJ that proof their clients are tax compliant. Those documents are important for the banks to reduce their fines. In addition, important specifications have been announced, which bring more clarity to the calculation of the fines.

As a next step the applications of the banks of the categories 3 and 4 will be handled.

In recent months, the approximately 100 banks have made an enormous effort to meet the requirements of the programme and to reach a non-prosecution agreement with the DoJ. The SBA expects that the banks in Category 2 will also come to a quick agreement that is in line with the principles of fairness and proportionality. The wait should not, however, be all too long. As a next step the applications of the banks of the categories 3 and 4 will be handled. Those investigations will last until the middle of 2015.